Smithson, Inc. decided to implement the activity-based costing approach and was quite successful in its use....

 

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Smithson, Inc. decided to implement the activity-based costing approach and was quite successful in its use. However, the controller is wondering if instead of only two activity cost pools, they should expand to three activity cost pools based on the following: - Family Model Deluxe Model Direct labor costs $75,000 $150,000 Machine hours $2,00 $2,00 Setup hours $200 $800 Packaging hours $50 $75 The estimated overhead of $450,000 is allocated as follows: machining activity cost pool $240,000, machine set up $170,000 and packaging S40,000. Instructions: - a) Determine the overhead rates using the aetivity-based costing approach with three cost pools. b) Determine the overhead allocation for the family model and the deluxe model using three activity cost pools. What is the difference in allocation between two activity cost pools and three activity cost pools? Is the difference in allocation worth using the third activity cost pool? Smithson, Inc. decided to implement the activity-based costing approach and was quite successful in its use. However, the controller is wondering if instead of only two activity cost pools, they should expand to three activity cost pools based on the following: - Family Model Deluxe Model Direct labor costs $75,000 $150,000 Machine hours $2,00 $2,00 Setup hours $200 $800 Packaging hours $50 $75 The estimated overhead of $450,000 is allocated as follows: machining activity cost pool $240,000, machine set up $170,000 and packaging S40,000. Instructions: - a) Determine the overhead rates using the aetivity-based costing approach with three cost pools. b) Determine the overhead allocation for the family model and the deluxe model using three activity cost pools. What is the difference in allocation between two activity cost pools and three activity cost pools? Is the difference in allocation worth using the third activity cost pool?

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